EPFR Global-tracked Emerging Markets Equity Funds recorded their 10th consecutive inflow during the week ending May 24. The bulk of the new money went either to diversified Global Emerging Markets (GEM) Equity Funds or dedicated Brazil Equity Funds with the latter recording their biggest weekly inflow since midway through the third quarter of 2012.
The flows into Brazil Equity Funds, most of which went to ETFs dedicated to this market, came on the heels of another twist in the country’s major corruption scandal which raised questions about the political survival of President Michel Temer and his ability to push through key reforms.
“The fact the money went largely to ETFs is consistent with investors rushing to establish short positions,” said EPFR Global’s Director of Research Cameron Brandt. “But it is also true that investors have been conditioned in recent years to see any sell-off as a buying opportunity that will disappear quickly. Investors who bailed out of Russia Equity Funds the week Russia annexed the Crimea saw those funds post a collective gain of over 20 percent in the following three and a half months.”
Going into May, GEM Equity Fund managers cut their Brazil exposure to an 11-month low while lifting their average weighting for China to within 23 basis points of 2015’s third quarter record high. But investors remain leery of China, with redemptions from China Equity Funds hitting a 10-week high, as Moody’s downgraded the country’s credit rating because of its discomfort with debt trends in the world’s second largest economy.
Funds dedicated to another BRIC market, India, extended their longest inflow streak since a 23-week run ended in the second quarter of 2015. The country’s 6 percent plus GDP growth and reform story have caught the eye of Japanese investors: roughly a third of the year-to-date inflows recorded by all India Equity Funds have gone to ones domiciled in Japan.
Cameron Brandt is Director of Research for EPFR Global, an Informa Financial Intelligence company.